The European Central Bank interest rate announcement, the Fed’s preferred inflation gauge, US GDP, UK jobs, and a slew of PMIs lie ahead in another busy week of economic news.
No change at the ECB
No fireworks are expected on Thursday when the ECB makes its latest monetary policy call with interest rates expected to remain unchanged.
Goldman Sachs (NYSE:GS) said: “With the Governing Council firmly on hold, investor focus for the October 26 meeting will be on three main issues, including commentary on the economic outlook, the hurdle for further hikes, and prospects for changes to PEPP reinvestments and reserve remuneration.”
The investment bank expects the Governing Council to state economic projections are broadly intact but with increased uncertainties due to the ongoing conflict in the Middle East.
Goldman expects President Christine Lagarde to highlight increased uncertainty around the outlook as a result of the conflict in the Middle East, with new downside risks to growth but also upside risks to inflation due to the recent rise in energy prices.
Giving an indication of the economic health, or otherwise, of the global economy will be a batch of PMI readings.
In Europe, Bank of America said it expects the preliminary October PMIs to show a further “shallow improvement across (most) sectors and countries,” while in the UK it forecasts them to “move sideways.”
ING Economics cautioned that a downbeat reading for the PMI would be negative for euro sentiment as it would increase expectations of a recession.
“We expect that the economic environment is currently broadly stagnant, but a recession is never far away,” it suggested.
Are rate rises hitting UK hiring
Back to the UK, the delayed Labour Force Survey release on Tuesday will give a further indication as to whether interest rate rises are hitting hiring.
Data from the Office for National Statistics this week showed a further fall in job vacancies. The ONS said the number of job vacancies in the July to September period was 988,000, a decrease of 43,000 from April to June, the 15th consecutive quarterly fall. Vacancies fell in 14 of 18 industry sectors surveyed.
ING explained the survey is suffering from dwindling response rates, hence the delay, and there are “clear question marks over how much weight we should be ascribing to these figures.”
It reckons the Bank of England will certainly treat them with a pinch of salt when the committee meets next.
The UK unemployment rate is expected to remain unchanged at 4.3%.
GDP and Fed's preferred measure in the spotlight
In the US, the focus will be on GDP figures and the Fed’s favoured measure of inflation, the core personal consumer expenditure deflator.
ING forecasts third-quarter GDP to come in at around 4%, boosted by strong consumer spending.
Leisure and tourism spending has been particularly firm, while residential investment should also contribute positively together with government spending, it added.
Bank of America is even more bullish - going for what it calls a "remarkable" 4.5% quarter=on-quarter rise.
Consumer spending should increase by 4.0%, it thinks, while the rate-sensitive sectors of the economy also appear to be stabilizing.
It believes the strength in GDP is likely to be broad and not attributable to special factors.
"The economy is beating expectations. By a long way," it added.
As for the PCE deflator, ING thinks energy prices will lift the headline rate and it is not as optimistic that core inflation will rise just 0.2% month-on-month or 3.7% year-on-year as the market expects.
“We fear slight upside risks,” ING said, which could be a “catalyst for the 10Y Treasury yield to clearly break above 5%.”
Canadian rates likely to remain unchanged
In Canada, the focus will be on the Bank of Canada's interest rate decision.
“What was a 50-50 call on a 25bp rate hike four weeks ago has now come down to look much more like a 20-80 chance in favour of no change, thus keeping it at 5%,” ING commented.